Ahead of the end of financial year, ASIC is urging private credit funds to ensure their asset valuations are ‘grounded in realistic assumptions’.
The 30 June deadline will be the ‘first real test’ for the sector, ASIC said, after the regulator conducted a review last year and released guidance on best practice for these funds.
The review had identified weaknesses in governance, disclosure, valuation practices and conflict management, although it acknowledged private credit is an important source of funding.
In a statement on 18 June, the regulator particularly flagged that funds’ EOFY valuations need to be realistic after finding some reported valuations “do not fully reflect underlying economic conditions”.
“Tighter liquidity, emerging borrower stress and signs of credit deterioration are testing valuations, governance and investor disclosures. Early insights from ASIC’s private credit work indicate the market is moving from a period of rapid growth into a more demanding phase, with persistent macroeconomic pressure and a slow creep in credit stress indicators,” it said.
“Weaker borrower conditions are increasing the risk that reported valuations do not fully reflect underlying economic conditions. In sectors such as property development, current conditions may expose pressure through cost escalation, project delays, soft presales, unsold stock, and weaker refinancing conditions.
“If valuations do not reflect current conditions and incorporate verified accurate information, there is a higher risk of misinformation and poor investor outcomes. ASIC expects participants to challenge assumptions and refresh valuations to ensure they are based on realistic and supportable inputs.”
A subsequent review of 22 managers covering 52 funds with $76 billion in assets under management conducted between 26 March and 14 May 2026 found issues such as valuations lagging economic reality, portfolio concentration and increased conflict risk.
It said:
- Credit deterioration is emerging unevenly with pockets of higher defaults, impairments, and loan amendments.
- Redemption requests remain contained in aggregate, with higher activity observed in some feeder funds investing in global private credit managers.
- Leverage and line of credit usage remain minimal.
- Most funds continue to manage liquidity adequately, although buffers are tightening.
- Macroeconomic pressures, including inflation, rising costs and supply disruptions, are affecting borrower performance.
- Softer investor inflows are slowing growth and tightening lending conditions.
- Growth in number of funds has notably slowed.
- Management of concentration risk is variable.
As part of its ongoing surveillance, multiple enforcement investigations are underway with active surveillance happening across wholesale and retail funds. The corporate regulator is also engaging with industry bodies on stronger standards and reviewing financial reports and audit files.
